2021-11-24

1987

There is a lot of focus on the how of 1987, the program trading that helped create crash conditions, and not the macro setup. The market thought rates were far too low. The same setup played out over and over in the 1970s. It does feel like the market is running up against all sense with price of oil rising again.
However, the macroeconomic outlook during the months leading up to the crash had become somewhat less certain. Interest rates were rising globally. A growing U.S. trade deficit and decline in the value of the dollar were leading to concerns about inflation and the need for higher interest rates in the U.S. as well (Winkler and Herman 1987).
Link opens a PDF. Federal Reserve: A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response

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